Deficit reduction: Is Obama's $4 trillion goal big enough?
Though their plans differ dramatically, President Obama and the GOP agree that the deficit needs to be reduced by about $4 trillion over the next 10 to 12 years, in order to reassure credit markets and get the debt under control.
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How does the Obama plan compare with the Republican budget proposal put forward last week by Rep. Paul Ryan, chairman of the House Budget Committee?
Both would reduce the level of deficits sharply compared with a status quo option in which tax rates and spending stay essentially unchanged. Both call for having the national debt on the decline – if measured as a share of GDP – by later this decade. Neither calls for balancing the budget or paying down the debt by 2021.
The Republicans say their deficit reduction adds up to $4.4 trillion over the 10 years from 2012 to 2021. Their spending cuts are deeper – about $5.8 trillion – but they also cut taxes.
But both plans come with some uncertainties. For example, it was not immediately clear this week what baseline the Obama plan is measured against. He wants $4 trillion in savings, but relative to what starting point? A senior White House official, in a Wednesday briefing, didn't give a detailed answer but cited an "adjusted" baseline from the Congressional Budget Office (CBO).
On Thursday, White House spokesman Jay Carney described the president's plan as roughly sharing the Ryan target – with both plans in the ballpark of $4 trillion.
The CBO has estimated that the Republican plan would hold the public debt to 70 percent of GDP as of 2022, measurably lower than the 95 percent debt-to-GDP ratio the CBO expects under an alternative (basically status quo) scenario. The Obama plan might achieve similar results.
Time would tell whether such plans would persuade financial markets that the US is successfully correcting its fiscal course. A key is not just whether debt ceases to grow by the end of this decade, but whether the outlook for the decade after that improves. That's when baby boom retirements will ramp into higher gear, potentially straining programs like Medicare and Medicaid.
Regardless of the right number for deficit reduction, another, equally vital question is how to get there.
While the Obama budget plan relies largely on tax hikes for well-to-do Americans, Republicans brag that their plan won't raise taxes. Meanwhile, Obama harshly criticized the GOP plan for its cuts to Medicare and other programs that benefit middle-class or lower-income Americans.